Introduction to Accounting

1. Introduction to Accounting

Bibigul Zhakupova
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2.

• What is Accounting?
– What Accounting is about?
– Why Accounting is needed?
– Where Accounting takes place?
– What accountants are doing at work?
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3.

What is Accounting?
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4.

Financial Accounting
Managerial Accounting
Tax Accounting
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5.

Accounting is ….
a language
of business
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6. Accounting is a language of business….

Cash Inflow
Cash Outflow
Revenue
Costs
Profit
Income
Gains
Earnings
Expenses
Losses
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7.

The Company / Business Entity
Coca Cola
Proctor and Gamble
Exxon Mobil
IKEA
KPMG
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8.

Financial Accounting
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9.

What are the main functions
of Financial Accounting?
To collect information about company’s
business transactions;
To prepare Financial Reports from this
information.
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10. Functions of Accounting

To Collect Information……..
What Kind of Information?
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11. Information regarding

business transactions
of the Company
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12.

What kind of transactions are
called “business transactions” ?
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13.

What kind of transactions are
called “business transactions” ?
Examples:
Purchase of raw materials
Purchase of equipment
Construction of plant, administrative building
Payment of salaries
Payment for electricity and utilities
Sale of furniture
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14.

How information regarding
“business transactions” is
collected ?
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15.

How information regarding “business
transactions” is collected ?
By collecting source documents
about business transactions
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16.

The collected information is
recorded.
How it is recorded?
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17.

The collected information is
recorded.
How it is recorded?
By journal entries, using debits
and credits
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18.

Financial Statements are
prepared from those records
through the process called
Accounting Cycle
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19.

Accounting Cycle
1. Information regarding business transactions is collected.
2. Information is recorded in a form of journal entries in General Journal.
3. Posted to the Ledger.
4. A Trial Balance is prepared.
5. Adjusting entries are prepared in General Journal.
6. Posted to the Ledger.
7. The Adjusted Trial Balance is prepared.
8. Income Statement, Statement of Retained Earnings, Balance Sheet and
Cash Flow Statement are prepared.
9. Closing entries are prepared in General Journal.
10.Posted to Ledger.
11. After-Closing Trial Balance is prepared.
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20.

Financial Reports are prepared
in accordance with rules
similar to all business entities
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21.

Accounting standards:
• IFRS (МСФО) - European
standards;
• GAAP – US standards;
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22.

Accounting standards are
needed:
• For the purposes of comparability of
Financial Reports of different
companies;
• To prevent frauds and manipulation
with figures in the Financial Reports.
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23.

Accounting Standards are the rules
prescribing:
• What information should be collected;
• How it should be recorded;
• What information should be contained in
particular Financial Statements;
• Etc.
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24.

Financial Reports are presented….
To External Users of information:
• Investors: current and potential
• Creditors: banks and financial
institutions
• General Public
• State Authorities
• Etc.
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25. Financial Accounting

Why to present information
regarding the company’s
financial performance and
financial position to the
external users?
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26. Financial Accounting

Investors and Creditors should make
a crucial decision:
How to allocate their (limited)
resources in the most optimal way?
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27. Financial Accounting

Information regarding business transactions of the company is collected
Information is recorded
Financial Reports are prepared:
• Income Statement
• Balance Sheet
• Statement of Cash
Flows
• Disclosure Notes
Accounting
Standards:
e.g. IFRS, GAAP
Financial
Statements
External Independent Audit
External Users:
•Investors
•Creditors
•General Public
•State Authorities
•Etc.
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28. Disclosure Notes

Mainly provide:
1.
Description of the main Accounting Policies;
2.
Explanation to some items/figures shown in
Financial Statements;
3.
Some information which is not present in the
Financial Statements (because does not belong to
the reporting period), however crucial for investors
to make decisions.
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29. The company’s Accounting Policy

• Prepared by the Chief Financial Officer and Chief
Accountant;
• Approved by the Board of Directors and Board of
Shareholders;
• Based on Accounting Standards;
• Describes how accounting is conducted for
specific transactions;
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30. Financial Accounting

Information
regarding
business
transactions is
collected
Accounting
Cycle
Financial Report:
• Financial Statements:
1. Balance Sheet;
2. Income
Statement;
3. Cash Flow
Statement;
4. Statement of
Retained
Earnings
• Disclosure Notes
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31. Financial Accounting

1. Information regarding business transactions is collected;
2. Financial Report is prepared;
3. Financial Report should be prepared in accordance with
accounting standards;
4. Financial Report should contain information only about
past transactions which really occurred;
5. Financial Report should be audited by an independent
auditor;
6. Financial Report is presented to external users (mainly to
Investors and Creditors) for analysis;
7. Based on the results of the analysis Investors and
Creditors will make an investment/loan decision.
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32. Managerial Accounting

Collect information for internal users:
1. Management of different levels;
2. Employees.
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33. Managerial Accounting

What kind of information?
Information which helps managers to run
the company in the most efficient way.
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34. Functions of Management:

Planning
Directing and
Motivating
Controlling

35. Planning and Control Cycle

Formulating longand short-term plans
(Planning)
Comparing actual
to planned
performance
(Controlling)
Decision
Making
Measuring
performance
(Controlling)
Begin
Implementing
plans (Directing
and Motivating)

36. Managerial Accounting

Information which helps managers to run the company
Information is collected and recorded
No Standard Reports
• What information to collect?
• How often?
• In what form to record and
present?
• What tools of analysis to use?
No rules such as
Accounting Standards
Discretion of the
managers
Internal Users:
•Management of different levels
•Employees
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37. Comparison of Financial and Managerial Accounting

Financial Accounting
Managerial Accounting
External persons who
make financial decisions
Managers who plan for
and control an organization
Historical perspective
Future emphasis
3. Verifiability
versus relevance
Emphasis on
verifiability
Emphasis on relevance
for planning and control
4. Precision versus
timeliness
Emphasis on
precision
Emphasis on
timeliness
5. Subject
Primary focus is on
the whole organization
Focuses on segments
of an organization
6. GAAP/IFRS
Must follow GAAP/IFRS
and prescribed formats
Need not follow GAAP/IFRS
or any prescribed format
7. Requirement
Mandatory for
external reports
Not
Mandatory
1. Users
2. Time focus
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38. Tax Accounting

Information regarding the company’s tax obligations and
payments is collected and recorded
Tax Reports
Corporate Income Tax Report
Value Added Tax Report
Individual Income Tax Report
Social Tax Report
Etc.
Tax Code
Audit by the Tax
Committee
External Users:
•State Authorities – Tax Committees
•Financial Police
•Other.
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39.

Thank you!
Any questions?
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